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Absence of Therapeutic Alternatives Bars Many Cost-Containment Tools Used for Conventional Drugs

WASHINGTON, DCHealth insurers and employers have few tools to control rapidly rising spending on high-cost specialty drugstypically high-cost biologic medications to treat complex medical conditions, according to a new qualitative study from the Center for Studying Health System Change (HSC).

Unlike conventional prescription drugs, where spending trends have moderated because of patent expiration, generic substitution and other factors, specialty drugs have persistently high trendsranging from 14 percent to 20 percent annually in recent years.

And, spending on specialty drugs is expected to skyrocket over the next decade, as some of the hundreds of biologics currently in the pipeline gain market approval. The number of conditions that can be treated with specialty drugsand patients eligible for treatment with these high-cost drugsare expected to soar, intensifying the cost and access trade-offs that payers and purchasers already face, according to interviews with representatives from health plans, benefits consulting firms, pharmacy consulting firms and other industry experts.

Federal law grants original brand-name biologics 12 years of market exclusivity, and many biologics are protected by patents for years after exclusivity expires. The absence of generic substitutes, or even brand-name therapeutic equivalents in many cases, gives specialty drug manufacturers near-monopoly pricing power and limits the effectiveness of conventional benefit design and utilization management tools, the study found.

Despite the dearth of substitutes, cost pressuresfor example, average specialty drug costs for a patient with multiple sclerosis approaches $25,000 annuallyhave prompted some employers to increase patient cost sharing for specialty drugs, according to the study.

“There is an inherent, profound challenge in weighing extremely high costs for individual patients against specialty drugs’ ability, in many cases, to extend lives and change the course of diseases rather than just treat symptoms” said HSC Senior Researcher Ha T. Tu, M.P.A., coauthor of the study with Divya R. Samuel, an HSC research assistant.

“Some believe higher cost sharing is counter-productive, since it can expose patients to heavy financial burdens and may reduce patient adherence, which in turn may lead to higher costs from complications,” Tu said.

The study’s findings are detailed in a new HSC Research BriefLimited Options to Manage Specialty Drug Spendingavailable online at www.hschange.org/CONTENT/1286/. The study, funded by the Robert Wood Johnson Foundation and the National Institute for Health Care Reform, is an offshoot of HSC’s 2010 site visits to 12 nationally representative metropolitan communities: Boston; Cleveland; Greenville, S.C.; Indianapolis; Lansing, Mich.; Little Rock, Ark.; Miami; northern New Jersey; Orange County, Calif.; Phoenix; Seattle; and Syracuse, N.Y.

Along with 174 interviews with health plans, benefits consulting firms and other private-sector market experts on a variety of topics during the site visits, HSC researchers conducted literature reviews and an additional 20 in-depth interviews specifically on specialty drug management with more representatives from health plans, benefits consulting firms, pharmacy consulting firms and other industry experts.

Utilization management for specialty drugs has focused on prior authorization and quantity limits, rather than step-therapy approacheswhere lower-cost options must first be triedthat are prevalent with conventional drugs, the study found.

Unlike conventional drugs, a substantial share of specialty drugstypically clinician-administered drugsare covered under the medical benefit rather than the pharmacy benefit. When specialty drugs are covered under the medical benefit, the challenges of such coveragehigh drug markups by physicians, less utilization data, less control for health plans and employershave led to attempts to integrate medical and pharmacy benefits, but such efforts are still in early development, according to the study.

Health plans are experimenting with a range of innovations to control spending, but the most meaningful, wide-ranging innovations may not be feasible until substitutes, such as biosimilars, become widely available, which for many specialty drugs will not occur for many years, according to the study.

Some observers and stakeholders, including the Federal Trade Commission, believe that an exclusivity period significantly shorter than 12 years would be sufficient to promote innovation; the Obama administration has proposed shortening the exclusivity period to seven years.

“It may be useful for policy makers to revisit this issue, balancing the need to promote drug innovation against the priority of making relatively affordable substitutes available in a timely manner,” the study concludes.

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The Center for Studying Health System Change is a nonpartisan policy research
organization committed to providing objective and timely research on the nations
changing health system to help inform policy makers and contribute to better
health care policy. HSC, based in Washington, D.C., is affiliated with Mathematica Policy Research.